TipRanks Smart Value #67: Positive Diagnosis
1
Dear Investors,
Dear Investors,
Welcome to the 67th edition of the TipRanks Smart Value Newsletter.
1
1
This Week’s Top Value Pick: Labcorp Holdings (LH)
Labcorp Holdings (LH) is a leading global life sciences and healthcare diagnostics company that plays a critical role in disease detection, clinical decision-making, and drug development. The company operates across the healthcare ecosystem, supporting physicians, hospitals, health systems, pharmaceutical companies, and patients through a broad portfolio of laboratory and research services.
1
Precision Expansion
Labcorp’s roots trace back to 1971, when it was founded as a regional laboratory business focused on providing physicians with reliable, standardized diagnostic testing. In the ensuing decades, the company expanded through a combination of organic growth, acquisitions, and investments in automation, logistics, and informatics. These initiatives enabled Labcorp to consolidate smaller laboratories, improve efficiency, and establish itself as one of the dominant players in the fragmented U.S. diagnostics market.
A major turning point came in 2015 with the acquisition of Covance for roughly $6.2 billion, the largest transaction in the company’s history. Prior to the deal, Labcorp’s business centered on diagnostic testing for physicians and hospitals, while Covance specialized in helping pharmaceutical companies develop and test new medicines. The acquisition transformed Labcorp from a pure diagnostics company into a broader life sciences organization, combining laboratory testing with drug development services. Management envisioned an integrated platform that connected diagnostics, clinical trials, biomarker development, and post-approval data, positioning the company as a bridge between laboratory insights and pharmaceutical innovation.
Labcorp reinforced this strategy in 2017 through the acquisition of Chiltern, a specialty contract research organization. The transaction expanded the company’s global footprint, creating a CRO with more than 20,000 employees and strengthening its ability to serve emerging and mid-sized biopharmaceutical companies. Additional acquisitions further enhanced the company’s life sciences capabilities. In 2021, Labcorp acquired Toxikon, adding nonclinical testing services and expanding its support for pharmaceutical and biotechnology customers. That same year, the company agreed to acquire Personal Genome Diagnostics (PGDx). This acquisition brought advanced cancer genomics capabilities, including liquid biopsy and tissue-based testing technologies, helping Labcorp expand its precision medicine and oncology testing portfolio.
Over the past five years, Labcorp’s evolution has accelerated. The COVID-19 pandemic highlighted the strategic importance of large-scale laboratory infrastructure, while investments in automation, digital reporting, and data analytics improved throughput, reliability, and customer relationships. As pandemic-related testing volumes normalized, management shifted its focus toward higher-value diagnostics, precision medicine, oncology, and advanced testing modalities rather than volume-driven growth alone.
At the same time, the company reassessed the structure created through the Covance and Chiltern acquisitions. While diagnostics and clinical development served the same healthcare ecosystem, their capital requirements, operating models, and risk profiles increasingly diverged. As a result, Labcorp spun off its Clinical Development business into an independent public company, Fortrea, in 2023. The move separated much of the large-scale CRO infrastructure assembled through Covance and Chiltern, while allowing Labcorp to retain businesses that remained closely connected to its diagnostics platform, including preclinical research, translational medicine, biomarker development, and central laboratory services. The separation marked a shift from building scale across the entire drug-development value chain toward a more focused strategy centered on diagnostics, laboratory science, and data-driven healthcare solutions.
Since then, Labcorp has continued strengthening its diagnostics franchise through targeted acquisitions and partnerships. In 2024, the company acquired key clinical diagnostics, reproductive health, and women’s health assets from BioReference Health, adding laboratory operations that generated approximately $100 million in annual revenue. In 2025, it completed the acquisition of BioReference’s oncology and oncology-related testing businesses, further expanding its presence in the growing oncology diagnostics market.
Acquisitions remain an important component of Labcorp’s growth strategy. Management has described the company’s M&A pipeline as “very strong,” reflecting a continued focus on expanding testing capabilities and market reach. The contribution from recent deals is already visible in financial results, with acquisitions accounting for approximately 2% of Diagnostics revenue growth and 1.4% of total company revenue growth during the first quarter. Labcorp also deployed $202 million toward acquisitions during the quarter, underscoring the continued importance of M&A as a growth lever.
Today, Labcorp’s acquisition activity has been concentrated primarily in life sciences and healthcare services, reflecting a long-term strategy of expanding testing capabilities, strengthening its oncology and precision medicine portfolio, and enhancing its role within the broader healthcare ecosystem. From a regional laboratory operator to a central node in global healthcare infrastructure, the company’s history is defined by continual adaptation, strategic repositioning, and an ongoing effort to connect laboratory science, diagnostics, and healthcare data in ways that improve patient care and support medical innovation.
1
Diagnostic Engine
Labcorp operates as a core utility of modern healthcare, sitting at the intersection of diagnostics, drug development, and preventive care. The company generates revenue through two complementary businesses: Diagnostics Laboratories (Dx), which accounts for roughly 78% of revenue, and Biopharma Laboratory Services (BLS), which contributes approximately 22%. Together, these segments allow Labcorp to participate in both everyday healthcare delivery and long-term pharmaceutical innovation, creating a diversified and recurring revenue base. The company provides laboratory services to physicians, hospitals, health systems, pharmaceutical companies, researchers, and patients, generating revenue each time a test is performed or laboratory services are provided. This model benefits from recurring healthcare demand rather than discretionary consumer spending.
The Diagnostics segment is built around one of the largest laboratory testing networks in the world, supported by laboratories, patient service centers, logistics infrastructure, and long-standing relationships with providers and insurers. Structural trends rather than pandemic-related distortions increasingly drive growth. Management has noted that testing utilization has reset to a higher baseline, supported by an aging population, rising chronic disease prevalence, greater preventive screening, and increasing test complexity. As a result, Labcorp is benefiting not only from higher volumes but also from a richer mix of specialized testing.
A key strategic focus has been expanding into higher-value specialty diagnostics. Oncology is the clearest example. The acquisition and integration of Invitae1 strengthened Labcorp’s molecular diagnostics capabilities and accelerated the rollout of minimal residual disease liquid biopsy tests across breast, lung, and colon cancers. These tests help guide treatment decisions and position Labcorp more deeply within precision medicine. Neurology represents another attractive opportunity, with the company building a broad testing portfolio that supports diagnosis, disease monitoring, and emerging therapies across multiple neurological conditions.
Growth is also reinforced through partnerships with health systems. Labcorp increasingly manages hospital laboratories and acquires outreach laboratory assets, expanding patient access while helping providers lower operating costs. These arrangements deepen market share, improve testing density and routing efficiency, strengthen payer relationships, and create opportunities for incremental volume growth without requiring proportional infrastructure investment. Targeted acquisitions and regional laboratory consolidation further enhance network scale and operating leverage.
The BLS segment provides laboratory infrastructure and scientific services that support pharmaceutical and biotechnology customers throughout the drug development process. Its largest business, Central Laboratory Services, supports Phase II and Phase III clinical trials through sample analysis, biomarker testing, logistics management, and regulatory-grade data generation. Unlike contract research organizations that primarily manage trial execution, Labcorp focuses on the laboratory infrastructure underlying clinical research. Demand is therefore tied to the growing complexity of modern drug development, particularly in oncology, biologics, and precision medicine, and tends to remain more resilient even during periods of reduced clinical trial activity. The BLS segment’s Early Development business provides non-clinical and pre-clinical contract research services to pharmaceutical, biotechnology, and medical device companies. It supports drug and device candidates before they enter human clinical trials.
Scale is a significant competitive advantage across both segments. Once laboratory infrastructure is established, additional testing volume can be processed at relatively low incremental cost, allowing revenue growth to translate into expanding profitability over time. The diagnostics and biopharma businesses also reinforce one another through shared scientific expertise, data capabilities, and testing platforms.
Technology further strengthens this ecosystem. Labcorp continues to invest in automation, digital pathology, AI-assisted workflows, and clinical decision-support tools that improve productivity, turnaround times, and customer experience. Consumer-facing diagnostics and functional health testing provide additional growth opportunities while remaining complementary to the company’s core laboratory franchise.
Importantly, Labcorp’s growth strategy remains disciplined. Management prioritizes acquisitions that are strategically aligned, quickly integrated, and financially accretive, while exiting businesses where scale and competitive advantages are less compelling. This approach has created a business that grows not simply through higher testing volumes, but by becoming increasingly embedded in healthcare delivery, precision medicine, and pharmaceutical innovation. The combination of recurring healthcare demand, expanding specialty testing, health-system partnerships, exposure to pharmaceutical R&D spending, and operational leverage provides multiple avenues for sustained earnings growth and strong cash generation over the long term.
—
1 – Invitae was a genetic testing company focused on oncology and inherited disease diagnostics. Following its bankruptcy in 2024, Labcorp acquired select Invitae assets, including molecular testing platforms, intellectual property, and scientific capabilities, which have since been fully integrated into Labcorp Diagnostics and used to expand its oncology and minimal residual disease test portfolio.
1
Profitable Precision
Labcorp’s investment case increasingly centers on three themes: expanding health system partnerships, accelerating growth in specialty diagnostics, and improving profitability through technology and operational efficiency. These initiatives are helping the company shift toward higher-value testing, stronger margins, and more durable revenue streams.
A major growth driver is the company’s health system partnership strategy. Rather than relying solely on organic testing volume growth, Labcorp continues to acquire outreach laboratory businesses and enter into long-term laboratory management agreements with hospitals. During 2026, the company announced a nationwide pediatric diagnostics collaboration with Children’s Hospital of Philadelphia (CHOP), completed the acquisition of select assets from Crouse Health’s Laboratory Alliance of Central New York, and signed a related inpatient laboratory management agreement. It is also awaiting the completion of its acquisition of outreach laboratory services from Parkview Health in Indiana and Northwest Ohio. These transactions expand Labcorp’s geographic footprint, increase testing volumes, and strengthen relationships with health systems.
Specialty diagnostics represent another important growth engine. Management has identified oncology, neurology, women’s health, and autoimmune disease as priority markets that are expected to grow two to three times faster than the broader diagnostics industry. These categories benefit from favorable long-term trends, including precision medicine, increased disease screening, aging populations, and greater use of targeted therapies. Importantly, they also carry higher reimbursement rates, stronger pricing power, and higher barriers to entry than routine testing.
Neurology and oncology both delivered double-digit growth during the quarter. In neurology, Labcorp continues to build a leading Alzheimer’s testing franchise and is collaborating with Roche to commercialize an FDA-cleared blood-based Alzheimer’s test, which could significantly expand access to early detection. In oncology, Labcorp expanded its portfolio of advanced cancer tests used to detect disease recurrence, guide treatment decisions, and support personalized medicine. The company broadened its offerings across breast, lung, and colon cancers, introduced additional blood-based cancer tests, expanded access to genomic testing through its partnership with Illumina, and secured FDA approval for a diagnostic test that helps determine which ovarian cancer patients may benefit from Merck’s blockbuster cancer therapy KEYTRUDA. These initiatives strengthen Labcorp’s position in some of the fastest-growing areas of diagnostics while creating opportunities for recurring testing demand.
The financial benefits of this strategy are already becoming visible. Diagnostics revenue grew faster than testing volumes, while profitability improved as the company benefited from a richer mix of specialty testing and a higher number of tests ordered per patient encounter. The company is intentionally prioritizing higher-value specialty testing over pure volume growth. As a result, accession growth has become a less important indicator of performance than revenue per accession, specialty testing penetration, and margin expansion.
Management also highlighted a potential long-term opportunity in oncology reimbursement. Reimbursement rates for newer liquid biopsy and genomic oncology tests remain below what management believes fully reflects their clinical value. However, reimbursement could improve as physicians increasingly incorporate these tests into treatment decisions and additional studies demonstrate their effectiveness, insurers often expand coverage and reimbursement rates. Beyond the direct revenue opportunity, oncology testing creates a meaningful “halo effect.” Once Labcorp wins a specialty oncology testing relationship, patients often generate recurring routine laboratory testing throughout treatment, increasing the lifetime value of the relationship and creating additional revenue streams beyond the initial specialty test.
Direct-to-consumer testing is emerging as a smaller but rapidly growing opportunity. The company’s direct-to-consumer healthcare platform, OnDemand delivered double-digit growth during the quarter and now offers testing across more than 200 biomarkers. New offerings include insulin resistance testing, pancreatic function assessments, and customizable men’s and women’s health panels. The company plans to continue investing in targeted consumer marketing while focusing on differentiated, higher-margin testing categories rather than competing in commoditized, price-driven segments. The upcoming MyLabcorp mobile application, expected to reach tens of millions of users, could further strengthen customer engagement and increase repeat utilization of testing services. Although OnDemand remains small relative to Labcorp’s $3.5 billion quarterly revenue base, management views it as a potentially meaningful long-term growth platform.
1
Intelligent Efficiency
Technology and operational efficiency are becoming increasingly important contributors to earnings growth. Through partnerships with PathAI, AWS, Datavant, and Optum.ai, Labcorp is expanding digital pathology capabilities, building AI-powered real-world data platforms, improving clinical trial recruitment, and automating laboratory workflows. Many of these initiatives are being implemented through the LaunchPad efficiency program, which uses AI, robotics, automation, and process redesign to improve productivity across pathology, microbiology, cytology, and billing operations. These efforts are helping offset inflationary pressures and improve profitability without requiring proportional increases in labor costs.
Among the key risks investors are monitoring, Protecting Access to Medicare Act (PAMA), which governs how Medicare reimbursement rates are determined for laboratory testing, remains the most significant regulatory issue. Management expects minimal impact in 2026, although reimbursement pressure could emerge in 2027 if the RESULTS Act2 is not enacted. Labcorp supports the legislation because broader participation by hospital laboratories in the reimbursement reporting process could reduce future reimbursement pressure. Management believes the company is well positioned because its scale and efficiency make it one of the industry’s lower-cost providers. The company does not currently view PAMA as a material near-term threat to growth.
Labcorp is evolving from a traditional volume-driven laboratory operator into a higher-margin diagnostics, data, and healthcare services platform. Health system partnerships, specialty diagnostics, oncology expansion, technology-enabled productivity improvements, and disciplined capital allocation are driving growth, while regulatory and macroeconomic risks appear manageable.
—
2- The RESULTS Act is a proposed legislation supported by Labcorp and the broader laboratory industry that would reform the PAMA reporting process. Through its participation in the American Clinical Laboratory Association (ACLA), Labcorp has been actively advocating for passage of the bill in Washington. The industry’s goal is to ensure that reimbursement calculations are based on a broader and more representative sample of laboratory providers, including hospital laboratories.
1
Positive Results
Labcorp has delivered consistent growth over the past three years despite the normalization of COVID-related testing demand. During this period, revenue and adjusted EPS grew at a CAGR of 7.1% and 10.1%, respectively. Growth was driven by strong organic expansion in the company’s core Diagnostics business, increasing adoption of specialty testing, strategic acquisitions, new health system partnerships, and continued demand for Biopharma Laboratory Services (BLS). These drivers more than offset the decline in pandemic-related testing revenue, reinforcing Labcorp’s competitive position across both diagnostics and drug development services.
Earnings growth outpaced revenue growth, supported by a combination of higher-margin specialty testing, operational efficiencies, benefits from the Fortrea spin-off, strong cash generation, and disciplined capital allocation.
The momentum carried into 2026. Labcorp reported a strong first quarter, with revenue increasing 5.8% year-over-year to $3.5 billion, exceeding expectations. Growth was driven by 3.1% organic expansion, a 1.4% contribution from acquisitions, and a 1.3% benefit from foreign exchange. Higher revenue translated into improved profitability, as adjusted operating income rose to $508 million from $469 million a year earlier. Adjusted operating margin expanded 30 basis points to 14.4%, while adjusted EPS increased 10.6% to $4.25, also surpassing analyst expectations.
Diagnostics, Labcorp’s largest business, remained a key growth driver. Segment revenue increased 5% year-over-year to $2.8 billion, supported by 2.9% organic growth, a 2% contribution from acquisitions, and a modest foreign-exchange benefit. Total testing volume rose 2.5%, although management noted that severe weather reduced organic volume growth by approximately 90 basis points, representing an estimated $15 million revenue impact. Excluding this headwind, organic volume growth would have approached 2%. Revenue per requisition3 also increased as the company benefited from a more favorable test mix and a higher number of tests per accession, particularly within specialty diagnostics. These factors helped lift the segment’s adjusted operating margin by 30 basis points to 16.6%.
Biopharma Laboratory Services also delivered solid results, supported by continued demand for central laboratory services. Segment revenue increased 8.2% to $781 million, driven by 3.7% organic growth and a 5.5% foreign-exchange tailwind, partially offset by a 1% impact from strategic actions within the Early Development business. Central Labs remained the primary growth engine, with revenue rising 11% overall and 5% on an organic constant-currency basis. Early Development revenue was largely stable, increasing 0.7% organically on a constant-currency basis as management continued implementing operational improvements. Strong growth in Central Labs contributed to a 60-basis-point increase in operating margin, which reached 15.5%.
Importantly, Labcorp continues to benefit from substantial future revenue visibility. The company ended the quarter with an $8.6 billion BLS backlog and expects approximately $2.7 billion of that amount to convert into revenue over the next 12 months. While the segment’s first-quarter book-to-bill ratio of 0.94 fell below the level typically associated with backlog growth, management attributed the result primarily to contract timing and quarter-end booking dynamics. On a trailing 12-month basis, the book-to-bill ratio remained healthy at 1.04, indicating that demand trends remain intact.
Cash generation improved sharply during the quarter. Free cash flow reached $71 million compared with an outflow of $108 million in the prior-year period, reflecting stronger operating performance and more favorable working capital dynamics. Labcorp ended the quarter with $981 million in cash and $6.3 billion of total debt, including a $750 million term loan issued to prefund the retirement of $500 million in notes due in June. The company continued to deploy capital toward growth initiatives, spending $202 million on acquisitions during the quarter. Despite these investments, leverage remained manageable, with a net debt-to-adjusted EBITDA ratio of 2.2x, below the industry median. Labcorp also maintained investment-grade credit ratings of “BBB” from S&P and “Baa2” from Moody’s.
Reflecting its strong start to the year, management raised its FY26 outlook. Enterprise revenue is now expected to grow between 5% and 6.1%, implying revenue of approximately $14.73 billion at the midpoint, including an estimated 40-basis-point foreign-exchange tailwind. Diagnostics revenue is projected to increase between 5.1% and 5.9% to roughly $11.48 billion at the midpoint, with most growth expected to come from core operations. BLS revenue is forecast to grow between 3.8% and 5.4% to approximately $3.25 billion, aided by a 150-basis-point currency benefit. Management expects Central Labs to continue delivering mid-single-digit growth, while Early Development revenue should remain relatively stable.
The company also increased its adjusted EPS guidance to a midpoint of $18.03, representing roughly 10% annual growth, and reaffirmed expectations for free cash flow of $1.24 billion to $1.36 billion. Compared with prior guidance, the midpoint of revenue guidance increased by roughly $30 million, while adjusted EPS guidance rose by $0.13. The upward revision underscores management’s confidence in the company’s operating momentum and its ability to continue translating revenue growth into earnings and cash flow expansion throughout the remainder of 2026.
—
3- A requisition is a physician’s order for laboratory testing, and revenue per requisition measures the average revenue generated from each testing order by dividing total revenue by the number of requisitions received.
1
Clear Specimen
Over the past year, LH’s stock has remained largely flat, despite the company’s strong underlying fundamentals. The stock rallied strongly through October 2025 but gave back much of those gains as investors entered 2026 with increasing caution toward the healthcare sector.
LH has continued to deliver strong financial results, driven by robust growth in its Diagnostics segment, ongoing expansion of specialty testing, and a healthy backlog in its BLS business. However, these strengths have been overshadowed by broader sector headwinds, including concerns over healthcare policy changes, potential Medicare and Medicaid reforms, reimbursement uncertainty, and macroeconomic risks. As a result, investor sentiment toward healthcare has limited the stock’s valuation despite solid operational execution.
From a valuation perspective, compared with peers such as Quest Diagnostics, IQVIA Holdings, Charles River Laboratories, and Medpace Holdings, LH trades toward the lower end of the peer valuation range based on non-GAAP trailing and forward P/E ratios, forward EV/EBITDA, and forward price-to-cash-flow multiples. This discount seems difficult to reconcile with the company’s combination of mid-single-digit revenue growth, double-digit earnings growth, strong free-cash-flow generation, and leading positions in both Diagnostics and Biopharma Laboratory Services. While concerns surrounding reimbursement trends, healthcare policy uncertainty, and the broader sector sentiment have weighed on the shares, continued execution could create meaningful upside. As LH expands specialty testing, converts its sizable BLS backlog into revenue, and meets earnings expectations, investors’ perception of the company could shift materially, paving the way for a higher valuation and stronger shareholder returns.
Analysts remain bullish about LH as the company’s improving free cash flow continues to strengthen the company’s financial flexibility, supporting capital investments, acquisitions, dividends, share repurchases, and debt reduction. At the same time, LH’s sizable BLS backlog and book-to-bill ratio above 1.0 provide multi-quarter revenue visibility, while its extensive diagnostics network, growing specialty testing business, and favorable pricing and test mix support sustained margin expansion and profitability.
Reflecting these strengths, Wall Street’s consensus price target implies roughly 17% upside from current levels, while the most optimistic analyst estimates suggest potential upside of approximately 26%. In addition, discounted cash flow analysis indicates that the shares may be trading at roughly a 50% discount to intrinsic value, suggesting that the market may not yet fully recognize Labcorp’s long-term earnings and cash-flow potential.
Beyond growth, LH continues to return capital to shareholders. The company has paid consistent dividends since 2022 and currently distributes approximately 17% of adjusted earnings through dividends. In the most recent quarter, LH declared a cash dividend of $0.72 per share and returned $61 million to shareholders through dividend payments. The company also remains active on the buyback front, repurchasing $98 million of stock during the first quarter. As of March 31, 2026, LH still had authorization to repurchase up to $732 million of additional shares, providing another avenue for shareholder returns and potential earnings-per-share growth.
1
Investing Takeaway
Labcorp appears to offer an attractive value proposition for investors willing to look beyond current healthcare-sector concerns. Despite operating one of the largest diagnostics networks in the industry, generating consistent earnings and cash-flow growth, and benefiting from durable demand drivers such as specialty testing, precision medicine, and pharmaceutical research, the stock continues to trade at a valuation discount to many peers. The market’s focus on reimbursement uncertainty and broader healthcare policy risks seems to be overshadowing the company’s improving business mix, expanding margins, and growing revenue visibility.
Importantly, Labcorp is no longer simply a routine testing company. Its increasing exposure to higher-value specialty diagnostics, strong health-system partnerships, substantial biopharma backlog, and disciplined capital allocation strategy position it for continued earnings growth. For value-oriented investors, the combination of a high-quality business, resilient cash generation, shareholder returns, and a discounted valuation creates a compelling risk-reward profile with meaningful potential for multiple expansion over time.
